February 17, 2005--Everyone knows that state budgets have been tight and jobs even scarcer over the past few years. But a new study from the National Governor's Association reveals a trend where states have turned to small businesses and entrepreneurs to help jumpstart their sagging economies and payrolls.

The study by the NGA's Center for Best Practices finds that state governors have been financially hamstrung over the past two fiscal years by flat revenue growth and shrinking budgets: 13 states even reported negative growth budgets in the 2004 fiscal year, according to the NGA. At the same time, employment statistics show that the U.S. economy had 1.3 million fewer jobs at the end of September 2004 than it supported three years earlier at the height of the dot-com boom.

Due to their limited resources, many state governors have turned to economic development programs designed to stimulate entrepreneurship for help, the NGA said. These initiatives would concentrate resources on fast-growing groups or "clusters" of businesses that share markets, labor, new ideas and products.

"With no new money to spend on development grants, tax incentives or infrastructure improvements that might spur short-term employment, governors turned to strategies to build the skills of the workforce, improve the innovative capacity of their regions and enhance their states' ability to compete in the world marketplace over the long term," the study said.

Governors have turned to small businesses because they represent 75% of all new job growth. Programs set up by states like South Dakota, Colorado and North Carolina focus on connecting small businesses with the things they need most: from services like legal assistance to access to tax credits and capital.